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A new ruling rekindles debate on freebies to doctors

In a significant development, a high court ruling had sought to uphold decision of the income-tax department to tax the amount pharmaceutical and other allied industries from health sector spend on freebies apparently for medical practitioners as well as their professional associations. The Confederation of Indian Pharmaceutical Industry had challenged the decision.

The Indian pharmaceutical Industry confederation is an apex body of the country’s small-scale manufacturers of drugs and pharmaceuticals. While dismissing a petition in this regard that was filed by it, the Himachal court stated: “We are not oblivious to the increasing complaints that the medical practitioners do not prescribe generic medicines and prescribe branded medicines only in lieu of the gifts and other freebies granted to them by some pharmaceutical industries.”

The Central Board of Direct Taxes circular in 2012 to this effect followed amendment to rules of the Medical Council of India, banning doctors as well as their associations from accepting any freebies that may include gifts, cash, travel facility or hospitality ostensibly extended by pharma firms/manufacturers of different medical devices and nutraceuticals. The department said that those accepting the freebies would also be taxed. It added that expenditure incurred by ‘an assessee for any purpose, prohibited by law, won’t be deemed to have been incurred for the business or profession purpose.

The board stated the department had come across many such instances. The IT department grants specific exemptions to cash amounts spent on business promotion, and also accepts claims on part of firms to allow deduction. An official was quoted as saying in a TOI news report by C Unnikrishnan, “Pharma firms cannot claim the benefit as regulations prohibit it. If we can prove the company extended freebies to doctors, they have to pay taxes. Those who receive freebies will also have to pay a tax on the gift’s value or money spent on it.”

The association’s counsel claimed the circular goes well beyond the I-T section dealing with the issue. However, the court didn’t accept this particular argument, saying the remedy lies for an individual assessee to file appeals under the IT Act. It mentioned: “Therefore, if the latter satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the medical council, it may claim a deduction.”